Cuckoo Paul

Maldives chucks out GMR in a repeat of Thackeray-Enron saga

G. M. Rao, Chairman of GMR group photo by Getty Images

(Update - The Maldives government and political right wingers have hardened their stand against GMR in the past 48 hours. The Maldives Civil Aviation Authority has informed GMR that its licence to operate the airport will be invalid after Dec 6. The Immigration department has said it will not renew visas and work permits for employees. Maldivian daily Haveeru Online reports that Adhaalath party chief Sheikh Imran and his coalition have threatened to invade the runway if GMR doesn’t leave in a week)

When the GMR Infra-led consortium bagged the mandate for operations (and expansion) of the Male airport in 2010, the Indian company was in the middle of a global push. The plan was to hive off and list its airports business. GMR led in the race for three airports in Brazil, and had pitched for projects in Indonesia and eastern Europe. The $500-m project in Male was built on early success at Istanbul’s Sabiha Gokcen airport.

The Maldivian cabinet decision on Tuesday, to send the Indian consortium packing has brought into focus the risk of doing business in emerging markets with rapidly changing political landscapes. India Inc has had its share of relatively minor `law and order’ problems in its journey into Africa and a few brushes with shifting goalposts in places like Indonesia and Russia. But being thrown out after signing a 25-year, supposedly iron-clad international contract, is a first.

In many ways GMIAL (GMR Male International Airport Ltd), the joint venture (between GMR Infra and Malaysian Airports) which operated the Ibrahim Nassir International Airport, has met a fate remarkably similar to Enron’s Dabhol Power Corp in Maharashtra in the mid 1990s. Like Enron in India, GMIAL’s project was the largest single foreign investment into the archipelago at the time. How then did public resentment build up to such a frenzy over two years? In both cases much of the ire was fomented by political parties.

Indian Villains

GMIAL won the contract to operate and expand the Male airport after competitive bidding overseen by the IFC (International Finance Corporation), a World Bank arm with impeccable credentials. The consortium beat a Turkish-French consortium (TAV Holdings-Aéroports de Paris. GMR’s win was based on sharing more from fuel sales and a higher upfront payment compared to non-fuel (retail and other) revenues.

The agreement was signed in June 2010 with the former president Nasheed’s administration. So far so good. As part of its bid, GMR had paid the government a fee of $78 million. It had also agreed to part with 1% of non-fuel revenue, 15% of fuel revenue for 2011-2014, which would go up to 10% and 27% respectively for 2015-2025. The plan was to improve the duty free and retail facilities – which would offset the (higher) sharing of fuel revenue. The consortium also started levying a $25 per passenger Airport Development Charge (ADC) to pay for constructing a much bigger new terminal. This did not go well with the local population.

Opposition to the ADC began growing rapidly. The loudest opponents were the Adhalaath party, a right-wing outfit led by its very vociferous president Shaikh Imran Abdulla. One of the opposition parties, the Divehi Quami Party (DQP), filed a civil case blocking GMR from collecting ADC. After a few months of non-collection, President Nasheed’s government chose to honor the commitment made to GMIAL and offered to pay the ADC from the government’s share of concession fee.

Popular sentiment started changing at this point; as the government started paying the consortium instead of earning revenues from it. The feeling was that GMIAL was raking in revenues from retail businesses, while the government and Maldives got nothing. For GMIAL, disaster truly struck when President Nasheed was deposed in a midnight coup this February. A coalition of opposition parties came to power. Opposition to GMIAL grew stronger and the government escalated the ADC issue, attacking the consortium on nationalistic grounds as well as with specious issues such as allegations of allowing Israeli bombers to refuel en route to bombing Arab territories. The ADC matter moved to international courts and went for arbitration to the Singapore High Court. GMIAL battled the government’s airport company MACL (Maldives Airports Company Ltd), which operated Male airport earlier.

In an interim order in November, the court granted a breather to GMR by restraining MACL from going to a civil court in Maldives. Public anger was by now being galvanized on the streets. Imran and the Adhalaath party had begun issuing ultimatums and deadlines to `reclaim’ the airport from the Indians. Marches were being organised on the streets every fortnight. The campaign gained strength because of tacit support from the government and President Waheed. The cabinet decision Tuesday was a mere formality.

In October 1995, the Maharashtra state government, under chief minister Manohar Joshi, had bowed to a similar sentiment and ‘scrapped’ Enron’s Dabhol Power project, despite a long-term agreement signed by the earlier government. The pressure was mostly from its own ally, the BJP, which had threatened to break the alliance if they didn’t comply. There was much rhetoric in the state assembly on how the project would harm mango production in the Konkan and that it should be ‘thrown into the sea’. In Enron’s case, the state did a volte face within three months, changing its position completely on every issue including the mangoes in Konkan. The Houston company top-brass led by Rebecca Mark met with the late Bal Thackeray in Mumbai, and the project was resurrected. Enron and DPC’s subsequent problems are another story.

But in Maldives, resolution to GMR’s problems could well depend on whether GM Rao can work the same magic as Mark did, all those years ago.



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Firstly, companies should seek legal advice from a competent lawyer. What happened to GMR was that Maldivian Constitution stipulates that the Parliament would have the power to levy tax. However, disregarding the Constitution, Government of Maldives then headed by MDP decided to execute the agreement. In addition, when parliament passed a bill restraining the president to execute the deal, President at some cost defied the bill and was ended up in the Supreme Court. Be informed that ADC claim was headed by an individual not any political party.
Open Letter to Indian High Commissioner to Maldives Sir, We realize that we are a small nation and that our population is less .03 percent of India. That's why we need your support, not bullying of our small state by your government. While I believe that it is your duty to act in the interest of India, you have no right to jeopardize our economy and endanger our people living in India by giving inflammatory remarks without any regard to our interest and our constitution. Traditionally we have had very close ties with our bigger neighbor and I do believe it will be in future and it is in the interest of both countries. It doesn't serve Indian interest by backing a corrupt GMR group, who is already alleged of corruption back home. We do believe most of our politicians are corrupt and after money, but GMR as a multinational company should have know better and could have done a better agreement which is not just acceptable by Nasheed but by Majlis as well. Where were you when Maldivian Parliament protested against the deal and urged not to sign the deal with GMR unless approved by the parliament, which is required under our constitution. You should have then advised GMR of the risks involved. Section 97 of Maldives Constitution Executive shall not (a) spend any public money or property; (b) levy any taxation; (c) obtain or receive any money or property by loan or otherwise; (d) provide any sovereign guarantees; except pursuant to a law enacted by the People’s Majlis. Concerned Maldivian
Adam Rasheed Ahmed (Aruvaali Aadhanu)
1-President Waheed's spokes Person Mr.Adhil Riza called Hinidian High Commission to Maldives Mr.Muley must send home with GMR. 2- INDIAN GMR Concession agreement which IFC described as an Example of PPP successful model. The GMR agreement was cancelled by Dr.Waheed Gov Cabinet. 3-Visa for Indian who were with GMR has been scheduled to Canceled. I am afraid if Everyone knew then that as a nation that prided itself on our sovereignty and independence, our foreign policy was not based on the amount of aid or loans we received.
What this story highlights are the risks investing in countries where lawmakers and politicians don’t understand the implication of molesting a contract that has already been signed. A contract once signed should be sacrosanct; otherwise it has no basis for any business deal. This turn around by the Maldives against GMR, whose population can be fitted into Eden Gardens cricket stadium, is no different in the slew of deals that the Government of India, frustrates. India’s reputation of changing tax laws or any laws with retrospective effect to suit some political party, are just the tip of the iceberg. India’s Political Risk is the highest in emerging markets and even higher than Burma and most parts of Africa. There is no predictability of investing in India, especially where Government is involved that always a threat of whimsical intervention. India is getting a taste of its own medicine. It is time India realises that Government cannot be a regulator and be in the business at the same time. This axiom should apply to all of India’s politicians.
David, GMR's Maldives experience is certainly cause for introspection in India. Sanctity of contracts has been poor not only for MNCs but even for Indian companies. Large Indian groups like the Tatas have been forced to unwind business in states like W Bengal, on the whims of the state government. TN Ninan, former editor of the Business Standard weighs in on this theme -
When a company as successful and large (as they claim) like GMR enters into an agreement to run such a large project, it's not that they do not know the dubious nature of the activities going within the government. When IFC talks about corporate good governance Min Raazy was in-charge of Foreign Investments, Min of Trade and acting Min of Finance. These are institutions directly related to making the decision on handing over the airport, Is this a coincidence?.. I think not. On this note the credibility of IFC is long gone. Then when the sitting board refused to sign the agreement it took the president 45 minutes to change the board and sign the agreement. The new board did not even see a single clause of the agreement. This itself was clear signal to IFC to warn the government on the nature of this conduct as NOT corporate good governance. We would have thought otherwise if the new board went away with the agreement for a week to study and came back and signed it. But no.. it was a clearly a demonstration of arrogance and greed. Were IFC and GMR blind not to see this and the ultimate end game of these actions. Then there was the pending resolution by the parliament against it, GMR knew about it but went along with the government and signed it anyway. GMR was arrogant and were fully aware what they were getting into and there was no other ending than what they have faced now. You want us to believe that GMR lawyers did not know that ADC cannot be collected under the prevailing laws of Maldives. How stupid are they? .. I still feel that India is a genuine partner in terms of our development and progress as a nation. However, GMR falls short of these sentiments as they have from the beginning failed to take into account and turned a blind eye to all the corrupt practices of Nasheed's government in order to fulfill their greed. I have no sympathy for GMR but genuinely would like to see Indian government's sympathy over Maldives stand against GMR... long live Maldives - India relations.
For the information of Cuckoo Paul, the editor of Forbes India. "Our former President Mohamed Nasheed was not brought down in an overnight coup".Please read the CoNI (Commission of National Inquiry) Report on his resignation in the following link: Regards Rasheed
GMR's agreement with the Maldives failed because GMR started to charge the Maldivian people, while making hefty profits off the division, without any of the major promised changes to the airport which GMR had promised materialising. The Courts in Maldives decided that Airport Development Charge could not be levied without the consent of the People's Majilis or Parliament of the Maldives. (As was the case in India, when GMR was barred from charging passengers ADC). Instead of submitting the issue to the Parliament of Maldives, President Nasheed decided to make the fool-hardy decision of instructing GMR that they could deduct ADC from their profits to the government. This was truly a stupid move, and this was against the wishes of the people, and this was the point when public resentment started to rise. As a result, instead of GMR offering the Maldivian government any income or returns, GMR started billing the Maldivian people in millions of dollars. How would Indians feel, if a Qatar or European country took over handling of the Airport of Delhi, with promises to develop the airport, does minor renovations like enact partisions and re-shuffle departments for over three years, and then instead of paying the Indian Government rent, starts to bill the Indian government for Airport development charge ? As an Indian how would you feel ? GMR were given many opportunities to amend this issue, but they chose to side with President Nasheed and MDP, and ignore the advice of Government. India must understand, this is not an issue Maldivians have with Indians, we have the utmost respect for Indians who form the backbone of our economy. This move is being made purely on commercial terms. President Nasheed made the decision for quick financial gain, he wanted the advance payment of GMR back then in 2010, to settle budget issues. But the result of GMR taking over the Maldivian airport has negatively affected a lot of Maldivians, with foreign currency availability decline being one of the most troubling issues. (GMR did not bank any of their revenues to Maldivian banks, and instead shipped all dollars received to India). As a result, a big shortage of dollars occured in the Maldivian economy, leading to the value of the Maldivian rufiyaa declining against the dollar from 12 rufiyaa per dollar to 15 rufiyaa per dollar. Peace.
GMR's experience in Maldives is rapidly turning into a case study in how not to do business. That said, balancing profitability with realpolitik and public sentiment in another country, is not easy even in the best of times. It turns into a really slippery slope when a corporation loses public trust. Happy to hear that the negativity does not extend to all Indians.
Blame president Nasheed for all this. He done everything in a hurry. All he wanted is advance payment from GMR. Even he have fooled local people about ADC. Most locals doesn't know government have to pay for ADC to GMR. Which is stupid
A lot of people do not know what happened before the contract was awarded. The problems started before GMR won the contract. GMR lobbied a lot of government officials and politicians including Mr. Ibrahim Shafeeg who operated some duty free shops at the airport. In fact Shafeeg was always with GMR promoting them. He was very influential with MDP too. The evaluation committee initially rejected GMR's bid on the basis that their numbers do not match. But Halcro the consultants to IFC, who are based in Delhi, intervened on behalf of GMR and persuaded the committee to change their vote in favour of GMR. The word is coerced. At this junction GMR should have been disqualified. After they won the bid, they kicked Mr. Shafeeg to the curb and took over his duty free business. This made Shafeeg and a lot of Maldivians upset. Before the contract could be signed, the Parliament brought to the floor a binding resolution that it could not be done without the approval of Parliament. The Chairman of MACL refused to sign the agreement and he was forced to resign and Nasheed appointed a new Chairman and this was signed before the Parliament approved the resolution. All this was done in 24 hours. GMR's Male audit shows unknown amount of millions spent on unkown fees. The ADC issue is that the agreement says it can be taken only with the approval of the appropriate authority and the courts and Parliament said it was Parliament but Nasheed's Attorney General it was the Finance Minister. This led to the the courts declaring that GMR cannot levy this charge and Nasheed's government letting GMR deduct this from the concession fee that led to the Government in the end having to pay GMR in the end. This was a terrible deal done by Nasheed's government and in the end no self respecting Maldivian would accept paying any airport operator in this respect.
Thanks for your comment Manik. What you call ADC and we in India call ADF (Airport Development Fee) is a major bone of contention almost everywhere in the world- particularly if the airport is being run by a private operator. Both Delhi and Mumbai airports are under fire in India for high ADF and UDF (User development fees) levied on passengers. The operators have invested millions of dollars in the projects, and obviously seek returns. But most of the debate is around how much should they be allowed to make. We are arguably in a better situation in India, because the fees can only be levied if the airport regulator allows it.
This isn't about ADC. this is about defying the existing laws of a country. If ADC is justified then it should be ratified in our parliament. Nasheed choose to hold it from both legislature and the courts, which eventually led his fall from office.
Most understand that ADC or ADF will be a part of revenue if a private operator develops the airport. Even in the cases of Delhi and Mumbai, Indian Supreme Court has put limitations of the TENURE of this fee where as in Maldives it was for 25 years. Here are some figures which are based on actual 1% paid to GoM by GMR. By 2014 Revenue to GMR from operations & fuel alone : USD 5.6 Billion. Even at a conservative 10% profit GMR will make 562 Million. During this period, the GOM will earn (concession fee and fuel) USD 128 Million. The Airport users will pay USD 121 Million. Since the Court ruled against ADC, this 121 will be deducted from Government revenue. Hence for this period, GMR is actually paying only USD 7 Million, for a fully operational, earning and equipped airport. This will be about USD 0.01 rental per square foot of that island. The going rate for bare land about 200 miles from Male' is higher than this. So definitely, there is something really wrong about the agreement. Maldives has a lot of foreign investment over the last 30-40 years and it should be question why no one faced any problems except GMR? The statement from GMIAL partner Malaysia Airports that within 2 years they have recovered the RM 20 Million from this project is sufficient to have an idea of how much they were generating.
Great story and analysis.
Your info is not correct. Dhivehi Qaumee Party, DQP is not the main opposition party. In fact it is a small party with only one member of parliament. Please correct this.
Thanks ayya, am making the change.
and Adaalath party does not have a single seat in the parliament.
For the kind information of the readers GMR is a very crooked Company who have bribed many MPs in the Maldives Parliament and by kicking the butt of GMR the Investor confidence in the Maldives will be much more stronger since the GMR's UN-ethickle activities being opposed by IATA as well not to mention the entire tourism related investors already in the Maldives for many years and the major sirlines have pulled out of Maldives hurting the tourism industry as a result of GMR heavy sucking the blood in the entire industries related to the airport
"Thackeray chucked out Enron" in the title, but your article says that Bal Thackeray helped Enron survive after the meeting with Marks. I'm confused. Am I misreading?
First chucked, then helped survive.
The cancellation raises concerns over investor protection in the Maldives, which is seeking foreign financing of tourism projects, and follows a year of political turmoil, with the ousting of a president and months of unrest.
You are absolutely right Adam. No move of this magnitude can be without international repercussions, especially if a contract is scrapped without waiting for a ruling from the arbitrator. Other Indian groups like Indian Hotels Limited, are also big investors in Maldives.
This is not the first Indian investment in Maldives, we have SBI running in Maldives since I was kid. we have other foreign investments. Our Airport was well and running when GMR came in. they didn't invest much. What they did was pay Nasheed's government some $150M to bribe him and to support his lawless government.
Adam, you are right. There will be repercussions because of the way the agreement was terminated. There was no need for the so called "National Alliance" to have rallies and bad mouth our nearest neighbour. India as a nation has always been there when we needed them. We still enjoy a lot of exemptions from shipping, exports and visa regulations which the Indians extend to Maldives ONLY! We found ourselves between a rock and hard place. There was no way that the Government can afford to pay GMR and the ADC law was unlikely to be approved from Parliament. Hence bad as it may be, the Government's only choice was minimize the loss. Under clause 19.2.1 says The Grantor (GoM) shall have the right to terminate this agreement upon the occurrence of any of the following events : and (h) For any reason of public interest including any Expropriation. Hence there was a way out more diplomatically while keeping investor confidence. They probably used the same thing, but the PR of this Government is zero!
Cuckoo Paul
Cuckoo Paul is Senior Associate editor at Forbes India. She spends most of her time looking for interesting business stories. She is biased towards tales of dirty, old-style, brick-and-mortar companies in the oil & gas, power and heavy engineering companies.
She also looks continuously, if somewhat skeptically, over the horizon to examine clean technologies which threaten to change the old order.

Apart from refining margins, her other obsession is with things airborne. She learnt flying on a Piper Super Cub and follows commercial and general aviation keenly. She is also on the board of Childfund India, an NGO that supports about 70,000 children in the country.
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September 12, 2014 17:50 pm by Why is Indian FDI shying away from South Asia? | East Asia Forum
[...] the GMR Group of India, which embarked on an airport modernisation project in 2010, had to exit the project due to unilateral termination by the Maldivian government in 2012. The point to be noted is that in general, there is a [...]
December 10, 2012 13:46 pm by Ahmed
Adam, you are right. There will be repercussions because of the way the agreement was terminated. There was no need for the so called "National Alliance" to have rallies and bad mouth our nearest neighbour. India as a nation has always been there when we needed them. We still enjoy a lot of exempti...
December 10, 2012 13:27 pm by Ahmed
Most understand that ADC or ADF will be a part of revenue if a private operator develops the airport. Even in the cases of Delhi and Mumbai, Indian Supreme Court has put limitations of the TENURE of this fee where as in Maldives it was for 25 years. Here are some figures which are based on actual...
December 08, 2012 16:56 pm by Methew Green
Firstly, companies should seek legal advice from a competent lawyer. What happened to GMR was that Maldivian Constitution stipulates that the Parliament would have the power to levy tax. However, disregarding the Constitution, Government of Maldives then headed by MDP decided to execute the agreemen...
December 02, 2012 16:22 pm by Moosa Anwar
This is not the first Indian investment in Maldives, we have SBI running in Maldives since I was kid. we have other foreign investments. Our Airport was well and running when GMR came in. they didn't invest much. What they did was pay Nasheed's government some $150M to bribe him and to support his l...